June 16, 2024

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Turk strategist unconvinced by comments on Jamie Dimon’s crisis

  • JPMorgan won the regional lender’s auction this weekend after it was forfeited, and will take possession of nearly all of its deposits and most of the assets.
  • “There may be another one that’s smaller, but this pretty much solves it all,” said CEO Jamie Dimon.
  • David Pierce, director of strategic initiatives at Utah-based JBS Capital Markets, told CNBC on Tuesday that vulnerabilities in the financial sector may run more deeply than messaging from bankers and policymakers suggests.

Workers are seen inside a First Republic Bank office on May 1, 2023 in San Francisco, California.

Justin Sullivan | Getty Images

One analyst suggested that JPMorgan Chase CEO Jamie Dimon’s assertion that the recent turmoil in the banking sector had in fact ended with a decision by First Republic may be premature.

The Wall Street giant has won the beleaguered regional lender’s weekend auction after it was seized by the California Department of Financial Protection and Innovation, and will receive nearly all of its deposits and the majority of its assets.

The First Republic’s demise was the third among mid-sized banks since the sudden collapse of Silicon Valley and Signature Bank in early March. This led to a global crisis of confidence that eventually pushed the powerful Swiss bank Credit Suisse to the brink, prompting an emergency bailout by local rival UBS.

“There are too many banks that have been sneaky in this way,” Dimon told analysts on a phone call shortly after the First Republic deal was announced.

“There may be another one that’s smaller, but this pretty much solves them all,” Damon said. “This part of the crisis is over.”

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Recent financial instability has added another worrying consideration for central banks, which have been aggressively raising interest rates to curb inflation, revealing some misconceptions held by some banks that did not anticipate a sharp tightening in financial conditions.

The US Federal Reserve will announce its latest monetary policy decision on Wednesday, and many central bank policymakers have reiterated their focus on dragging inflation to the ground even if it means tipping the economy into recession.

David Pierce, director of strategic initiatives at Utah-based JBS Capital Markets, told CNBC on Tuesday that vulnerabilities in the financial sector may run more deeply than the messages from bankers and policymakers suggest.

“If you listen to the political side of this, you’d have them tell you that it’s really not a problem because it’s all covered by the FDIC insurance but the money has to go into that and they insure deposits at a much higher rate,” he told Squawk Box Europe. On CNBC’s “Squawk Box Europe,” the insurance covers, and on the other side of that, you can look at the deal that Jamie Dimon had, and they got a great deal on their buyout.

The FDIC estimated that the cost of the First Republic Deposit Insurance Fund would be about $13 billion, significantly higher than the $2.5 billion estimated for Signature Bank but lower than the $20 billion estimate for Silicon Valley Bank’s solution.

Pierce suggested that the sudden nature of the US crashes and bailouts may indicate that the central bank and regulators may not have the finger in ensuring that smaller lenders have access to an adequate money supply.

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“It shouldn’t have happened in a vacuum like this, and it makes me wonder a little bit why they had to take it over and sell it over the weekend? Could they have funded them and given them extra capital, provided they had loans? Have I made it through this difficult time?” he said. .

“Jamie Dimon comes out and says ‘That’s it, that’s the end of it, we’re all fine now’ – I don’t think we can really say that yet, because we don’t know what other problems are lurking, there’s obviously some hidden stuff, and a lot of this comes back It also indicates that there is some mismanagement of these banks.”

He added that the failing banks had largely taken an interest in the technology sector specifically, leaving them uniquely vulnerable to interest rate increases after they made riskier loans to “before-profit” companies.

However, recent Wall Street earnings have shown that deposits in the aftermath have flowed heavily from small and medium-sized banks to large and large lenders systematically, and Pierce noted that the two-month turmoil “has already reduced the capital in the market, especially available to companies with high debt.”

The World Economic Forum’s Senior Economist Forecast, published on Monday, showed that chief economists in general do not currently see widespread systemic risks from the recent banking chaos, but do believe it will have some economic impact.

“Although senior economists are broadly optimistic about the systemic effects of the recent financial turmoil – 69% describe it as isolated episodes rather than signs of systemic weakness – they point to potentially harmful effects,” the report said.

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“These include pressures on the flow of credit to businesses and the potential for significant disruption to real estate markets in particular.”

That assessment was repeated on Monday by strategists at DBRS Morningstar.

“Overall, we expect limited immediate fallout from this failure, as the market has been well aware of the issues negatively affecting First Republic Bank, which reported very weak results after the market closed on April 24,” said John McCurry, First Republic Senior Vice President. . DBRS Morningstar’s Global Financial Institutions Group.

“Longer term, we expect further pressure on asset quality as rapid interest rate increases cool the economy and negatively affect asset values, particularly in commercial real estate where retail and office properties are under pressure.”